CRC Energy Efficiency Scheme: Am I In?

The Carbon Reduction Commitment (CRC) was announced in the 2007 Energy White Paper and the Energy Efficiency Scheme came into force in April 2010. The CRC is a mandatory scheme aimed at improving energy efficiency and cutting emissions in large organisations. The lead UK Administrator for the scheme is the Environment Agency; in England and Wales it will also audit and enforce the scheme.

The CRC was developed by the Department of Energy and Climate Change to help deliver the UK’s pledge to reduce greenhouse gas emissions by at least 80% from 1990 levels by 2050. Its primary focus is to reduce emissions in non-energy intensive sectors in the UK.

Does my organisation fall within the CRC Energy Efficiency Scheme?

The CRC affects a large number of public and private sector organisations throughout the UK. There are two ways in which your organisation may be affected. The first is if your organisation used at least one half-hourly electricity meter during 2008. If it did, then you should have registered for the CRC Energy Efficiency Scheme through the CRC Registry, a purpose-built online system, by 30 September 2010. Approximately 20,000 organisations fell into this bracket. More details of the next deadline are below.

UK energy efficiency

The second way is if your organisation qualifies as a ‘participant’. Participants are defined by their 2008 electricity consumption. Any organisation that consumed at least 6,000 MW/h of electricity through all of its half-hourly meters during 2008 (equivalent to an electricity bill of £500,000 and around 3,333 tonnes of CO2) will qualify as a participant. There are thought to be approximately 5,000 qualifying organisations in the UK. Such organisations include hotel chains, supermarkets, banks, central government and large local authorities. Most fall below the threshold for the European Union Emissions Trading Scheme, but account for around 10% of UK carbon emissions. In an attempt to minimise the administrative burden, emissions covered by the EU Energy Trading Scheme and by a Climate Change Agreement would be exempt from the CRC, as would organisations with more than 25% of their emissions covered by Climate Change Agreements. However, it should be noted that only a specific subsidiary covered by a CCA will be exempt, rather than the entire organisational group.

An organisation is exempt from the CRC if a sufficient amount of its emissions are covered by a Climate Change Agreement. There is a further possible exemption for organisations with specific UK tax exemption.

How does the scheme affect my organisation?

If your organisation fulfils the participant criteria, you need to register and must also satisfy these requirements:

Participants need to measure and report their carbon emissions annually, following a specific set of rules. These include producing a Footprint Report once per phase, submitting a yearly report on the organisation’s annual emissions and maintaining an evidence pack containing up-to-date records relating to energy use;

Participants must purchase allowances from the government for every tonne of carbon dioxide they emit. The price of allowances will be fixed and, starting in 2012, participants will purchase allowances from the government annually to cover the previous year’s emissions. Phase 2 of the scheme will begin in 2014; there will be two sales a year, in which the price of allowances is fixed. In the 2011 budget, the price was set at £12 per tonne of CO2. A lower price in the first sale will incentivise good energy management and reward those who successfully forecast energy use;

All participants are ranked in a performance league table published annually by the Environment Agency. Position in the table will be determined by performance in three separate areas:
(a) Early Action Metric: 50% of the score is based on the percentage of the organisation’s electricity and gas supply covered by voluntary automatic meter readings (AMR) in the year to 31 March 2011. The other 50% is based on the proportion of the CRC emissions certified under the Carbon Trust Standard (or an equivalent scheme);
(b) Absolute Metric: the percentage change in the organisation’s emissions, compared to the average of the previous five years (or number of years available until 2014/15);
(c) Growth Metric: the percentage change in emissions per unit of turnover, compared to the average of the previous five years (or number of years available until 2014/15).
If an organisation has a half-hourly electricity meter but consumed less than 6,000 MW/h per year, it qualifies as an ‘information declarer’ and will only need to register a simple information disclosure. It will not have to carry out annual reporting, purchase allowances or be involved in league tables.

How will my organisation benefit by qualifying for the CRC Energy Efficiency Scheme?

The benefits of qualifying for the CRC Energy Efficiency Scheme are twofold. Firstly, there is a definite financial incentive to perform well within the scheme because reducing emissions will mean buying fewer emission allowances. This puts you at a cost advantage over competitors that have not cut emissions. It is believed that the savings made should be well in excess of the cost of participation of the scheme.

Carbon reduction

The second clear benefit for an organisation that performs well is that the CRC Energy Efficiency Scheme performance league table will rate and compare participants’ carbon reduction efforts. A high ranking could enhance your reputation with customers, suppliers, business partners, employees and investors alike. And, the CRC apart, improving your organisation’s energy efficiency is likely to save money and improve the reputation of the firm.

The benefits listed above are the official position and in the industry; the CRC Energy Efficiency Scheme has widely been received as a straightforward carbon tax.

Deadline approaching

If your organisation qualifies for either aspect of the scheme then registration is mandatory. The deadline for organisations qualifying within the 2008 period to register was 30 September 2010, so all eligible organisations should already be registered – it is worth noting that the financial penalties for not registering on time are severe. The qualification period for Phase 2 runs from 1 April 2012 and 31 March 2013. Therefore, if your organisation satisfies the criteria between those dates, you will need to register between 1 April 2013-30 September 2013.

A consultation on draft legislation to amend the CRC scheme has been planned by the government and is likely to take place between February and April this year. The government’s response to the amendments is expected in September, as is the Environment Agency’s updated guidance.

The scheme is one which is being constantly updated and improved, and in order to ensure that your organisation is up to date with developments, it is worth checking the Environment Agency’s website regularly.

How can Lyons Davidson help your organisation with CRC?

Our Environmental, Health and Safety Department run environmental law training for businesses and groups of professionals, which includes an overview of CRC. We can also assist organisations who would like to explore exemptions form the CRC Energy Efficiency Scheme are required to register, those dealing with audits and also those who are being investigated by the Environment Agency. We are also experienced in advising on company buy-outs involving organisations that were previously under the threshold for CRC but that now need to register because they have taken over extra buildings.

Lyons Davidson will provide updates to this article following the consultation.

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